Drought impact shakes up latest auction, milk shortage tipped
The volume of dairy products offered in the latest GlobalDairyTrade auction fell to the lowest level in almost two years as drought in the North Island curbed milk production.
Fonterra indicated to the market in late January that the volume of product being placed on the GDT was likely to decline over the coming months as it neared the end of the season, managing director of NZ Milk Products Gary Romano says.
"The drought has impacted this further," he told BusinessDesk.
Total milk production for the season could drop for the first time in five years to be 2 percent lower than last year's total, Westpac agri-economist Nathan Perry says.
"As recently as last month we were still expecting total production to be slightly up on last year, but since then the drought has pushed it off a cliff," he says. "It all depends when the rains come."
Only 15,994 tonnes of dairy products were sold at the auction, from a maximum available supply of 16,320 tonnes. That is the lowest volume offered and sold since the May 17, 2011 auction, according to GDT data.
Sales volumes have steadily fallen for three months, taking a nosedive in March as warm weather turned to drought across the North Island, drying up dairy production.
The volume in the latest sale is down from 21,922 tonnes sold on March 5 and 33,467 tonnes on February 19. In the December 4, 2012, auction 52,596 tonnes were sold.
BNZ economist Doug Steel says the low volume of production caused by the drought is creating a sharp tightening in supply, leading to a big squeeze and higher prices.
"Prices going up are going to dampen demand," he told BusinessDesk. "People are going to be consuming less milk, but that's because there is going to be less to consume."